Identify More, Observe Less: Mediation Analysis Synthetic Control
Discussion Papers on Business and Economics, University of Southern Denmark, 12/2019
51 Pages Posted: 31 Oct 2019
Date Written: October 22, 2019
The synthetic control method (SCM) allows estimation of the causal effect of an intervention in settings where panel data on just a few treated units and control units are available. We show that the existing SCM as well as its extensions can be easily modified to estimate how much of the “total” effect goes through observed causal channels. The additional assumptions needed are arguably very mild in many settings. Furthermore, in an illustrative empirical application we estimate the effects of adopting the euro on labor productivity in several countries and show that a reduction in the Economic Complexity Index helped to mitigate the negative short run effects of adopting the new currency in some countries and boosted the positive effects in others.
Keywords: MASC, Synthetic Control Method, Mediation Analysis, Causal Channels, Causal Mechanisms, Direct and Indirect Effects
JEL Classification: C21, C23, C31, C33
Suggested Citation: Suggested Citation